Penalty on coal miners may hurt power consumers

Is it logical to ask miners to pay a penalty of ₹295 for every tonne of coal extracted from such assets from the time the allotments were made, beginning in 1993?

More importantly, should the consumers of 4,000-4,500 MW captive fuel-fired electricity generated in West Bengal, Punjab, Rajasthan and Karnataka pay for it as is suggested by the electricity generation sector?

“Fuel cost should be a pass through for the power sector,” Ashok Khurana, Director General of Associated Power Producers, has said.

The penalty number goes back to the Comptroller and Auditor General’s (CAG) report of 2012. Dealing with blocks allotted to private sector from 2005 onwards, the CAG estimated that the free-of-cost allocation of reserves should help captive miners pocket a windfall gain of ‘₹295 a tonne.’

To arrive at the gap, the auditor deducted the average cost of production and finance (as per Coal Ministry prescribed norm) from the average realisation — ₹1,028 — of Coal India from opencast and mixed mines in 2010-11.

Captive producers feel the calculation is simplistic. The CIL average includes prices of high quality coal and e-auction earnings. The cost of extraction remaining same, common grades of low calorific value thermal coal fetch a low margin.

With the government “vehemently opposing” formation of an expert committee, this issue could not be probed in detail.

The Centre’s keenness to end the impasse over 200 blocks may now be a cause of concern for electricity consumers in four States.

For instance, in West Bengal the State utility meets one-fifth of its fuel requirement from captive sources, mined by its 26:74 joint venture with private miner EMTA. The transfer price is 19 per cent lower than the CIL price.

In 2012, when the CAG report was tabled, the ex-mine price of the captive fuel was ₹100 a tonne lower than CIL supplies. Post the apex court ruling, this coal should be costlier by ₹100 a tonne.

The cost difference will keep rising, as you go back due to the low price of CIL supplies.

So, if the generation lobby has its way, roughly one crore consumers of the State utility will have to pay an unrealistically high historic price for fuel.

And, over 25 lakh consumers of CESC Ltd in Kolkata may be worst hit.

CESC was the first to be allotted a captive block in 1993. It meets half its fuel requirement from captive sources. But the fuel was transferred by the group mining outfit, Integrated Coal Mining Ltd, at CIL prices. This means consumers did not enjoy any price benefit of CESC’s captive mining and are now facing the prospect of paying a flat ₹295 a tonne more than the CIL price, with retrospective effect.

There is little doubt that captive miners did make windfall profit. In unregulated sectors, like steel, this either helped them to price the final product more competitively or earn extra margin. In the regulated electricity sector, the profit was retained by the mining outfits.

Yet, it is impractical to assume that miners earned a historical margin of ₹295 a tonne because coal prices were much lower in the past.

Till 2007, when half of the 40 captive mines were already operating, the average opencast realisation of CIL was barely ₹750 a tonne, that too because of the e-auction.

The common varieties sold to power stations through firm pacts were priced much lower.